Commercial Loans are used to fund businesses and to purchase or finance the construction of a property for a commercial business. They cannot be used for personal reasons. A commercial loan uses commercial property, or real estate, as collateral to secure the loan, often referred to as a mortgage. The commercial loan collateral is sometimes supplemented by a general obligation of the borrower or with a personal guarantee from the business owner. Commercial loans are also called business loans, or commercial mortgages. They can be used to purchase the business premises, start up a new company, purchase inventory or new equipment, fund new construction, perform renovations and repairs, buy a commercial building for new or existing business, expand or extend an existing business, refinance an existing mortgage, cover emergency expenses, provide investment capital, etc.
You can apply for a commercial loan if you have a new business or an established business that needs money, and if you have a legal business entity such as a sole proprietorship, partnership, LLC, corporation, or nonprofit organization. The business or the business project needs to qualify for the commercial loan and verify that it can pay pack the loan with interest in the agreed upon time period. Commercial loans are usually obtained from conventional financial institutions, such as banks, credit unions, and insurance companies; commercial banks provide the majority of business loans.
The commercial loan is almost always underwritten by the value of the property being mortgaged. However, the borrower/owner may use personal assets to supplement the business security if necessary. Lenders may require the owner to establish a separate business entity specifically to own the property so they can foreclose on the property in the event of a loan default.
Business owners have a variety of lending products to choose from. There are generally three broad commercial loan categories: conventional, subprime (high risk borrowers), and guaranteed (i.e. SBA and B&I). With the many options available in the commercial lending arena, including construction loans, acquisition loans, and refinancing loans, to name a few. We offer loans to owner occupied properties as well as to investor owned properties.
The primary criteria used by most lenders to evaluate all commercial loans are loan-to-value (LTV), debt service coverage ratio (DSCR), and the borrower's credit rating. You will see these terms mentioned often while the loan is in process as these are important factors to consider while you consider a commercial loan.
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